Is Your Strategy Working?

By Artem Bogdanov July 12, 2010

Does your business have a strategy that conflicts with your vision? Do all departments and business units have the same strategic goals? Are personal goals of your employees aligned with the company goals? How do you measure efficiency and productivity of your business? And how do you know that your company is on the right track?

If you do not have a good way to align operational and strategic management, and communicate performance both internally and externally, then Balanced Scorecard (BSC) may be the answer.

People have different concepts of BSC. For some it is just a performance management. A simple dashboard with the categories of indicators used by executives and managers. Management-based scorecards very often have little strategic component.

On the other hand, BSC can be used as a strategic system for planning, measurement and management. In such case BSC aligns goals, measures and actions of all departments with the strategy. In other words, such systems put strategy into action, rather than control company performance.

The first and the most important step in BSC implementation is strategy development and understanding of customers and shareholder needs. It is important to identify so-called strategic themes that include strategic objectives and are associated with strategic results. Typical examples of strategic themes are market driven excellence, customer focused operational excellence, strategic planning, innovation and growth. Then, based on strategic themes and strategic objectives, a set of key performance indicators can be developed. These indicators are divided into four perspectives: financial, customer, internal business processes, learning and growth.

Financial perspective

Strategic objective: increase return on investment (ROI)

A company dealing with numerous operational disciplines may not be doomed to fail even if decisions related to development of products are wrong. Many make product decisions based on development expenses. In these cases it is imperative to analyze return on investment and use it in the process of making decisions.

As a rule, companies are usually satisfied with how they can determine return on product development expenses and technology. But traditional approaches to return on investment, like discounted cash flow analysis, are hard to apply in technology. And this analysis is often performed by a Finance team. Decisions on how much to spend, what to spend on, and when to spend often results in dissonance between contributions of profitability in product development and various support efforts.

However, there is an alternate option to analyze return on investment in technology companies:

  • Unified financial indicators for management purposes and product planning
  • Measurable EBIT, operating income or EBITDA
  • Scaling from the level of project up to the product line, department and company/corporation

A unified financial metric will facilitate decision-making and help to decide where to invest. This will help to develop projects and programs that have the highest revenue potential, increasing profits and revenue as a direct result of appropriate product development and efficient innovation. There may be some other strategic objectives like increasing revenue and profits. Goals that are inseparable from any financial perspective.

Customer perspective

Strategic objective: intensify customer relations

The technology market is fluid and regularly impacted by a variety of new products. The company may be busy developing what they think is revolutionary, but when it is introduced to the market find it is out-of-date and/or has strong competitors. Market evaluation and monitoring should never stop as it is impossible to base product development decisions on "point-in-time" measurement.

A simple example to illustrate would be the satellite phone. Initially, it was meant to be a way to make a call from any place in the world. With the rapid acceptance of cell phones which were cheaper and lighter, the satellite phones were doomed to fail. However, it would be wrong to say that development of satellite phones was a bad idea. It was a mistake in the market evaluation.

Forecasting is extremely important before and after launch of any new product. The key mistakes in prediction are:

  • All issues are continuously monitored
  • All high priority issues are identified and the necessary resources found to deal with them
  • Indicators are obtained from issues coming from customers

If frontline employees pay attention to these there seems to be little problems with customer satisfaction and retention of existing customers.

It is no secret that customers request, expect and very often demand upgrade and improvement in product features and quality of services. Moreover, many are willing to pay for these upgrades and improvements. But customer satisfaction can improve even if a customer fails to implement the upgrade but is aware that such an option is available.

Internal business processes perspective

Strategic objectives: make improvements in a market evaluation procedure

The technology market is fluid and regularly impacted by a variety of new products. The company may be busy developing what they think is revolutionary, but when it is introduced to the market find it is out-of-date and/or has strong competitors. Market evaluation and monitoring should never stop as it is impossible to base product development decisions on "point-in-time" measurement.

A simple example to illustrate would be the satellite phone. Initially, it was meant to be a way to make a call from any place in the world. With the rapid acceptance of cell phones which were cheaper and lighter, the satellite phones were doomed to fail. However, it would be wrong to say that development of satellite phones was a bad idea. It was a mistake in the market evaluation.

Forecasting is extremely important before and after launch of any new product. The key mistakes in prediction are:

  • Failure to accurately define customer buying cycles
  • Variations in buying cycles throughout different customer groups, market segments and geographic regions
  • Wrong predictions for timing of customer purchases

Improvement of product lifecycle management is another important strategic goal. The sooner innovative products are developed and introduced to the market, the greater market share will be obtained. It is also an excellent opportunity to position the company as a leader in certain markets.

Learning and growth perspective

As mentioned above, innovative technology can be a critical success factor. There are many ways to obtain such technologies without huge risk and enormous expenses. If the company wants to stay a leader in certain markets one of the strategic goals will be continuous identification and application of innovative technologies.

It should be noted that some organizational structures fail to work in technology companies. Top-down often slows development and results in losing a competitive advantage in the market. Cross-functional teams usually have the relative freedom in decision-making, allowing product lifecycles to shrink. It is also important for top management to keep pace with cross functional teams otherwise there will be no purpose in their creation.

Summary

Technology companies achieve success through innovation and introduction of innovative products to the market.  As said above, it is extremely important to maintain relations with customers.  A strategy-based Balanced Scorecard will measure objectives and show cause and effect ties between them, so executives and employees can actually see what needs to be done to implement financial goals.

Categories: Leadership
Artem Bogdanov

Artem Bogdanov

Artem Bogdanov is BSC Designer consultant at AKS-Labs. AKS-Labs is a software development and consulting company focused on Business Intelligence, dashboards and scorecard solutions. The company's major product is BSC Designer, which provides top-managers and CEOs with valuable business performance information. For more, see www.bscdesigner.com.

Looking for the latest in product management news, articles, webinars, podcasts and more?